Over the past twenty years, I’ve met a lot of different people who possess different amounts of savings. I’ve met many people with nothing. I’ve met millionaires. I’ve met lucky dogs who have tens of millions of dollars. I have never met a billionaire. (If you know one and they are looking for a financial advisor, send them my way).
It sure would be nice to be rich, wouldn’t it?
Maybe not.
I have noticed a striking phenomenon throughout the years. The amount of money you possess has a diminishing return on your happiness and enjoyment of life.
What does that mean? Let me show you through a few illustrative anecdotes.
Meet George.
George is close to broke. He owns a small home without a mortgage, but he and his wife must survive solely on social security of $2700 per month. That’s pretty tight.
I’ve done hundreds of budgets with clients and I’ve found that — in Sarasota, one of the leading retirement spots in the country — if you have no mortgage, you can get by pretty well on $4,000-$5,000 a month.
But, at $2,700 a month, George and his wife really need to be careful. They can probably only own one car. Probably can’t go out to eat much, and need to clip every coupon. They will get by, but a broken air conditioner can put incredible stress on their lives. In fact, I am willing to bet George and his wife live with a lot of daily stress over finances.
I don’t want to live like George.
Next is Nancy.
Nancy did better in preparing for retirement. In addition to her social security, she and her husband cobbled together about $400,000 in savings. They own their home and their social security totals $3,200.
Nancy invested her $400,000 in a balanced and diversified portfolio of stocks and bonds, with more than half the money in stocks. It is reasonable for her to withdraw $1600 a month from the account without putting herself in danger of running out of money.
This now equals $4,800 a month, which is much more doable. They can take a vacation now and then. They stay at lower-end hotels and utilize specials and happy hours. Nothing fancy, but great memories nonetheless. Her husband plays golf on the municipal courses, and they even signed up for nutrition classes at the local YMCA. They made a game of finding the best dinner specials in town.
While they are not living a lavish lifestyle, I’ve found the Nancys of the world can be perfectly content with her $5,000 a month. Of course, there are things she wishes she could do, but the European river cruise and new kitchen just aren’t in the cards. It doesn’t bother Nancy all that much. She has a roof over her head and can buy what she needs.
Now, what about Bob?
Bob was an executive at a small company in Tampa. His salary was in the six figures, and, together with his wife, they were able to save $1.2 million dollars. “I can’t believe we’re millionaires,” Bob would often think.
With their house paid off, Bob and his wife, between social security and investment dividends were bringing in $9,000 per month. After taxes that left $8,000 a month in cash, deposited straight into their bank account.
Now, this is some pretty serious money. Their budget is only $5000 per month, which gives the couple $36,000 a year of “play money.”
Bob and his wife begin to travel. Alaska, Europe, and New Zealand. They love the trips but after a year or two, Bob begins to tire of travel. “I like being in our house,” he says. “We live in paradise and all that traveling wears me out.”
They replace the floors and add a patio on the back deck. Bob plays golf at some of the nicer public courses and got his handicap down to 15. They go out to eat basically whenever they want. Maybe, every once in a while, they would really splurge on a good steakhouse dinner.
While Bob and his wife enjoy the money, they found that after a few years, spending $36,000 of play money was unnecessary. There is no reason to spend money just for spending money’s sake. They found a new source of joy in giving generously to their church and spoiling their grandchildren.
Bob and his wife ended up well-traveled with an upgraded home, living a quiet life they had learned to enjoy.
Lastly, Charlene
Charlene was rich. Between her social security and her investments she realized about $20,000 a month in retirement income. This gave her nearly $100,000 of play money per year, while living a very nice lifestyle.
Charlene’s husband is a member of an exclusive country club and plays golf at their world-famous course now and then. Even though it is only the two of them, they live in a 4,000 sq/ft house, which they can easily afford.
They travel whenever and wherever they choose. African safaris, cruises to far off exotic lands — always in the upgraded suite of course — and other adventures. They eat at the finest restaurants, owned the finest clothes, and had the best haircuts. Of course, Charlene wanted a chef’s kitchen so she could entertain.
Charlene and her husband quickly ran out of ideas on how to spend the money. They had everything they wanted.
What is the point, Dave?
George (the broke one) desperately needed more money. His current income put him under incredible stress. He had to watch every penny.
Nancy is your standard professional woman. She saved some money which allowed her to do some of what they wanted but the cheap version.
Bob, with his one million dollars, had a lot of opportunities.
Charlene could do whatever she wanted.
Now, let’s break down their lifestyles:
- George cannot afford to play golf. He and his wife cannot afford to travel and cut coupons for groceries.
- Nancy’s husband plays golf at the municipal courses. They must plan dinners out around Early Bird Specials, but they can enjoy a meal out.
- Bob plays golf at a nice public course. He and his wife eat out at nice restaurants when they wish. They traveled, and they found other, fulfilling ways to spend their money.
- Charlene and her husband belong to a fancy country club. She and her husband can eat wherever they want, whenever they want. They traveled the world and back.
The difference from George to Nancy is significant. But, the difference between Nancy and Bob is actually pretty small. They both play golf. Maybe Nancy had fewer sandtraps and water hazards. And maybe the greens were not as nice.
The difference between Bob and Charlene is actually pretty small, smaller than you would think. I can tell you, from personal experience, a five-star French restaurant’s food doesn’t taste all that much better than the nice Mom and Pop place down the street. Nancy and Bob were basically eating at the same places. Both got to travel.
Now, here’s an important point: Nancy, Bob, and Charlene all had the same amount of fun on their trips. Maybe Bob and Charlene got to take more trips to more exotic locations. But is that really that big of a deal?
Charlene’s Mercedes gave her no more joy than Nancy’s used 2018 Honda CRV.
Her 4,000 sq/ft home was lovely, but Nancy had plenty of joyful, happy memories in her 1,500 sq/ft home. The size of the house isn’t what matters. It is the life you create inside it.
Nancy, Bob, and Charlene all ended up eating at essentially the same restaurants.
They all got to enjoy being terrible golfers.
I don’t want to be George.
Not having enough in retirement is a very tough situation. But, as for Nancy, Bob, and Charlene — they all lived relatively similar retirements.
Diminishing returns.
Being “rich” does not give you all that better of a life compared to the “kinda-rich” compared to the “working/middle class.” Sure the levels of “fanciness” are different but does it really matter that much if your hotel room has newer carpet than the other?
Conclusion:
- George is poor.
- Nancy has enough to pay her bills and some fun stuff.
- Bob gets to do more, but if Bob’s fun is double the cost, it is not twice as good.
- Charlene’s riches, you would think, would create a whole next level of living. They don’t. Charlene gets to do whatever she wants at a premium price, but for three times the price as Bob, the increase of quality is quite minimal.
Don’t have a false impression that more money means a totally different retirement lifestyle. It doesn’t. I’ve done this for 20 years. It doesn’t.
As long as you have enough to not worry about paying the bills, like George.
Money doesn’t matter anyway. We have been put on this Earth for relationships. The relationships you have in your lives are far more important than your monthly income. The cliché is true — I’ve met very wealthy, lonely people, and I’ve met people without a penny to their name with lives full of love.
Be Blessed,
Dave
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